M/s Paxton Infrastructure Pvt. Ltd. vs ITO, Ward-14(2)

PER NAVEEN CHANDRA [A. M]:

The above captioned appeal is preferred by the assessee against the order dated 03.08.2020, passed by the Learned Commissioner of Income Tax(Appeals)-38, New Delhi (hereinafter referred to as ‘ld. CIT(A)), under section 250 of the Income Tax Act, 1961 [hereinafter referred to as, “Act”] for Assessment Year 2011-12. The assessment order in this appeal is passed by the Assessing Officer [for short, AO] under section 143(3) of the Act.

Brief fact of the case is that the assessee company was incorporated on 14.01.2010 and was engaged in the business of real estate as promoters, developers etc. The year under consideration is the second year of the company and the assessee filed a return declaring income of Rs 8,42,478/- on 24.09.2011.

During the year under consideration, the Assessee received contract receipts of Rs.14.39 Cr in pursuance of a contract awarded by M/s Era Infra Engineering Ltd for the work of site clearance, excavation and removal of debris, erecting temporary staging/walkway and removal thereof in relation to the construction of Delhi International Airport.

The Assessee further sub-contracted the work to three different parties and incurred contract expenses of Rs. 14.21 crore as per different scope of work as follows:

The Ld.AO framed the assessment u/s 143(3) holding that entire sub-contract is sham and circuitous with ultimate beneficiary being the Assessee, and disallowed the entire contract expenses of Rs. 14.30 Cr. On appeal, the CIT(A) upheld the addition.

Aggrieved, the Assessee has preferred the instant appeal. The ld counsel of the assessee submitted that the Assessee company was awarded a contract by M/s Era Infra Engineering Ltd in relation to the construction work of Delhi International Airport for which the assessee received a total amount of Rs. 14.39 Cr during the year. The Assessee company submitted as evidence the following to prove that the Assessee carried on the work order sub-contracted by M/s Era Infra Engineering:

With respect to contract expenses paid to the three sub-contractors, the Assessee produced the following documents:

The ld AR stated that during the remand proceedings initiated by the Ld.CIT(A), the AO confirmed the submission of additional evidences but raised objection to admission of these evidences without controverting the contents of the evidence/documents. The ld AR stated that when the contract in relation to Delhi International Airport awarded by M/s L&T Ltd to M/s Era Infra Engineering stands executed by sub-contracting the same to the Assessee, how is it even possible for the Ld.AO to conclude that no contract expenses have been incurred by the Assessee while executing the said contract. Further, the contract receipts for the work done stands received by the Assessee which has been duly offered to tax in the return of income filed for the relevant year. Accordingly, the Assessee has validly claimed the contract expenses actually incurred in relation the said contract receipts.

Further, the ld AR submitted that out of the total contract expenses of Rs. 14Cr, the Assessee paid contract expenses of Rs. 10Cr to M/s AMR Constructions and one of the main reason behind the said disallowance was that the Ld.AO could not find the financial statement of M/s AMR Construction from the MCA website. In this regard, it is submitted that the Assessee has submitted the audited financial statement of M/s AMR Construction as additional evidence before the Ld.CIT(A) and same has not been disputed by the Ld.AO or Ld.CIT(A). The audited financial of M/s AMR Construction shows contract income of Rs. 1380 Cr which includes Rs. 10 Cr received from the Assessee. (Please refer Paper Book page 156)

Lastly, the ld AR submitted that all work order has been furnished with the said three parties as well. The aforesaid three contractors have given their confirmation which prove beyond any iota of doubt that the Assessee has incurred contract expenses. (Please refer paper book page 122-144). The Assessee has duly deducted tax on the payment made to the said contractors and have also made all the payment during the year squaring up the account of the contractors. Copy of the bank statement already furnished at paper page 102-108.

Per contra, the ld DR relied on the orders of AO/CIT(A).

We have heard the rival submissions and have carefully perused the materials on record. We find that the AO made the aforesaid additions in absence of documents/ evidence and basis data of these companies from MCA website. The CIT(A), in remand proceedings admitted the additional evidences but gave credence to the MCA website information and held that payment for contract not proved without elaborating the reasons.

We find that M/s L&T Ltd awarded contract of Rs. 22 Cr for site clearance, excavation etc for construction of Delhi International Airport to M/s Era Infra Engineering Ltd. M/s Era Infra Engineering Ltd sub-contracted the same to the assessee for 14.41 crore who in turn sub-contracted the work to the three different parties namely M/s AMR Constructions; M/s Blue Prints Securities and M/s Conception Infrastructure Pvt Ltd. The assessee filed evidences such as work order awarded to M/s Era Infra Engineering from M/s L&T Ltd; work order by M/s Era Infra Engineering to assessee; work orders to M/s AMR Constructions; M/s Blue Prints Securities and M/s Conception Infrastructure Pvt Ltd by the assessee as well as supporting documents such as ledger account of sub-contractor; their confirmations; their audited financial statements; assessee’s bank statements reflecting the payments for payment received and payments made. We also find that neither the AO nor the CIT(A) has controverted the evidences/documents furnished by the assessee nor have given any adverse view. The ld AO did not make any independent verification with the concerned three parties to discredit the assessee’s claim/evidences. On the one hand, the ld AO has accepted the entire contract receipts as income but has completely denied the benefit of payments made for earning that income. In view of the above factual matrix, we are of the considered view that the assessee has successfully discharged its onus of explaining the expenses made and therefore, the addition made are unwarranted. We therefore, direct the AO to delete the aforesaid addition. The ground is allowed.

In the result, the appeal of the assessee in ITA No.1643/Del/2020 is allowed.